Navigating Wall Street's Lexicon
RENEE MONTAGNE, host:
And the financial crisis is forcing many of us to learn a language most Americans don't use. We've been turning to NPR's Chris Arnold to help us decipher some of that jargon. Today Chris takes on the lexicon of the stock market.
CHRIS ARNOLD: If you turned on the financial network CNBC on one particularly bad day in October, you would have heard this.
(Soundbite of CNBC broadcast)
Ms. AMANDA DRURY (Anchor, CNBC): We're seeing pure panic and indiscriminate selling at the moment. How long is this going to last?
Mr. PETER CARDILLO (Chief Market Economist, Avalon Partners): Hopefully, we're getting very close to total capitulation.
ARNOLD: Capitulation, this is a big word right now. Anchor Amanda Drury was talking to economist Peter Cardillo and market strategist Kirby Daley.
Mr. CARDILLO: And the markets are getting near some sort of capitulation.
Ms. DRURY: What do you think, Kirby? Are we anywhere near capitulation?
Mr. KIRBY DALEY (Senior Strategist, Newedge Group): Yeah, this is clearly capitulation. I think there is a...
ARNOLD: So what exactly are they talking about? Basically, the idea here is that in previous stock market crashes, you reached a point when almost everyone who is trading gives up. They capitulate. There's a total surrender to the bear market, and everybody's selling at once. Andy Kessler is a former hedge fund manager who writes books about the market now.
Mr. ANDY KESSLER (Former Hedge Fund Manager; Author): The last fund manager or the last set of individuals out in the marketplace, have they given up hope? Have they just said, you know what, sell everything, and just en masse, people are puking out stock? That would be capitulation. And that is what forms the bottom.
ARNOLD: Nice image. Basically, Kessler is saying that you flush out most of the people who are likely to sell. Some people just won't sell. For example, the people saving for retirement over the long haul who don't even look at the stock market. But others buy and sell all the time, or some are prone to panic and dump their stock. And once a lot of them have pulled the trigger and sold, prices crash. But then there aren't as many sellers left, and buyers start coming back in to buy on the cheap and stocks stop falling. So a lot of people are asking, are we there yet? That gets us to another term. When the market starts to rise now, people wonder if it's just a dead cat bounce.
Dr. NARIMAN BEHRAVESH (Chief Economist, IHS Global Insight): The notion being that, you know, even dead cats can bounce if you drop them from a high enough building.
ARNOLD: That's Nariman Behravesh, the chief economist at IHS Global Insight.
Dr. BEHRAVESH: Even very depressed markets can see minor rallies, but don't get fooled, basically.
ARNOLD: It could still just be a dead cat or a bear market rally or a bull trap. There are a bunch of terms for this. There was also a more wholesome market image being used a lot last week. Here's CNBC anchor Maria Bartiromo.
Ms. MARIA BARTIROMO (Anchor, CNBC): Anybody's guess how this market goes because some people would say it's baked in the cake already, and we're expecting that.
ARNOLD: Baked in the cake is pretty much what it sounds like, that the market factors in any forecasted or predictable information, whether it's a rate cut by the Fed or the overall direction of the economy. And this is actually a really important point because it's a reminder of why a lot of famous investors tell people that they shouldn't get scared and sell their stock right now, because since the market is forward looking, it will probably bounce back well before the economy recovers. Nariman Behravesh.
Dr. BEHRAVESH: Yes. From that perspective, it's very important for individual investors not to panic, not to sell at the bottom, as it were, because often the markets do tend to turn up before a recovery, in anticipation of a recovery.
ARNOLD: Nobody knows when that will happen. More bearish investors think the market will crash again. But others find cause for optimism in the calendar. They have a saying that, quote, "October is where bears go to die." That's because in some previous downturns, markets have suffered so much bad news and fallen so much in that month that by November the markets hit bottom and started to turn around. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.